Shelley and I believe so strongly in our mantra of “no starving artists” that we take it literally when we speak publicly. We feed our audience cookies!
When we started down this path, we spoke with our good friend, Flo – an exceptional baker and home-chef. She offered to create a prototype cookie for us that would not only taste great but could also operate as an edible business card.
The next step was to figure out the cost to S2 Seminars for all this yummy goodness. Flo agreed to let us walk her through our maker pricing process to arrive at what she should charge per cookie.
Here are the steps we used for Flo and the cookies.
Step One: Figure out the material costs to produce a batch of cookies.
How much were the ingredients and the packaging to produce a dozen final-product cookies? Taking into account the cookie and icing ingredients, the plastic sleeves and the ribbon, and any spoilage, Flo used her receipts to calculate that 12 finished-product-worthy cookies could be produced for around $9.
Note 1: Flo defined spoilage as cookies where the royal icing surface was not level or flat, the edges were too brown, the bottoms too dark, the icing letters smudged, etc. She felt roughly 9 in every 12 cookies she produced were acceptable to represent S2. This meant each batch had to contain a minimum of 16 cookies to make sure she got a full dozen of her final product.
Note 2: For those with an accounting bend reading this blog, please know we purposefully kept this story simple. If Flo were going to make and bake full time, then we would definitely need to expand our pricing process to include sunk and operating costs and possibly some amortization too.
Step Two: Figure out the cost of labour required to bake, ice and package a batch of cookies.
Including shopping and cooking time, Flo estimated the labour was around two hours per dozen worthy cookies. She did feel her labour estimate would become lower over time once she developed a production system but for now, this was the number.
In Alberta where we live, minimum wage was $13.60 when she was producing the cookies. Multiplying two hours times $13.60 gave us $27.20 for the cost of labour.
Step Three: Figure out the price to charge per cookie.
Now we knew the ingredient and packaging costs and the labour costs. It was time to do some more math and figure out the price per individual cookie.
Herein lay the crux of the problem. S2 Seminars had a budget of $1.50 a cookie. $3.02 per cookie was more than double! To get the price per cookie to meet our budget, it meant the material costs, labour costs or both needed to shrink.
Flo looked at her material costs and decided that, with our mutual eye to a quality product, there was not much that could be done to get the cost lower. Next, she determined that meeting the goal of $1.50 per cookie would mean she’d only be able to charge $4.50 per hour until her systems were in place. This put a lot of pressure on those systems to become ultra efficient so her labour rate could reach the minimum wage per hour target. Her chances of success were extremely low.
We then came to the mutual conclusion. Although we all loved the finished product, it was cost prohibitive for either of us to pursue further. We sure had fun finishing up the prototype cookies though!
If you’re a maker and struggling with setting your price, write us and we’ll write back.
S2 Seminars, Grow Exponentially – use both sides of your brain!, is a partnership between Shelley Goldbeck and Susan Cramer. To learn more about running your small business, contact us today.